What the McCleary Decision Means for REALTORS®

by
Tricia McKimbrough
| Feb 18, 2015

For REALTORS®, the question of how the legislature funds basic education to comply with the Supreme Court’s McCleary decision matters both in Olympia and at home. In Olympia, new tax revenues being discussed include increased business and occupation (B&O) taxes, a new state capital gains tax, or imposing the state’s sales tax on professional services—including real estate services.

The History of McClearyIn 2007, a lawsuit was filed on behalf of Matthew and Stephanie McCleary, and their two children as well as 30 school districts and 30 local teachers unions that claimed Washington State was not adequately funding basic education. In February 2010 a judge ruled in favor of the plaintiffs. The state of Washington appealed and the case was sent to the Washington State Supreme Court. In January 2012, the Washington State Supreme Court ruled that Washington was not living up to its constitutional obligation to adequately fund basic education. Article IX, Section 1 of the Washington State Constitution dictates that education is “the paramount duty of the state.” The court also set a 2018 deadline for the legislature to meet the requirements of the constitution.

After the Supreme Court ruling, legislators added $980 million dollars to the education budget for the 2013-2014 biennium. They also agreed to divert funds for four years to increase the amount of money going into education. The Supreme Court determined that was not enough. In January 2014, they cautioned the Legislature that it was not making enough headway toward the 2018 deadline. The Supreme Court ordered lawmakers to submit a plan by April 2014 on how they were going to meet the requirements of the Court. The legislature did not do enough to comply with this order and now the Supreme Court is holding lawmakers in contempt of court with sanctions to be determined immediately after session. With budgets being tight and the House and Senate divided on how to fund McCleary, lawmakers are considering taxes, levy swaps, budget cuts and other options to fund education.

Funding Options
There are several options lawmakers are looking at to fund McCleary. One idea is using a levy swap that is revenue-neutral on a statewide basis. Right now, local school districts keep the money they receive from local district levies for that district. If a levy swap were to occur, local districts would pay their local taxes to the state and then the state would determine which districts need more or less funding based on a state formula. This idea has been proposed in recent years by both Democrats and Republicans, but there are complications as school districts would likely have wide ranging differences in the funding and tax impacts. Rep. Ross Hunter, D –Medina, Chairman of the House of Representatives Appropriations Committee gave his opinion of what the legislature needs to do to fund McCleary: “There are two basic ways to go about addressing the problem: 1) raise new sustainable revenue or 2) reduce programs to make it possible to spend money on K-12 education.” There are also several other options that the legislature will look at when it convenes in January. After the legislature decides what it will do, the Supreme Court will determine if it is adequate. There has been backlash towards the Supreme Court for taking on a policy role in the McCleary case, which many believe is the role of the legislature.

Our Stance
Washington REALTORS® has been a supporter of the levy swap idea as a revenue neutral way to funnel more money into schools. As REALTORS®, we believe education should be funded by a broad base of tax payers and not just on the backs of small business owners. We understand the importance of education, but if education is truly a priority, as we believe it is, it should not be funded by one portion of the working public, it should be funded by everyone. REALTORS® recognize that good schools are a must for property value and support broad based funding sources for education. During this next session watch for legislative updates and Calls to Action to see the progress of McCleary and ways you can be involved.